Indemnity Costs Order in Class 3 Proceedings

On 7 February 2018, Molesworth AJ of the Land and Environment Court delivered his judgment in Croghan v Blacktown City Council (No 2) [2019] NSWLEC 9 (Croghan). The judgment represents a notable development in the law concerning the making of costs order in Class 3 land acquisition proceedings. It represents the first time that the Land and Environment Court in New South Wales has ordered the claimant to pay the acquiring authority’s legal costs assessed on an indemnity basis.

Background

In Croghan, the acquiring authority is Blacktown City Council (Council), who sought to acquire part of Mr Croghan’s land in the suburb of Vineyard in 2016 for the purpose of constructing new drainage system and for public recreational uses.

In October 2016, the Valuer-General of New South Wales had assessed the total compensation payable to Mr Croghan at $4,802,000.

Dissatisfied with the Valuer General’s assessment, Mr Croghan lodged an appeal in the Land and Environment Court under the Court’s Class 3 jurisdiction. In the Class 3 Application, Mr Croghan sought a compensation of $11,157,251.88. This figure was revised down $8,405,752.00 four days before the hearing in February 2018.

In September 2017, Council made an offer of compromise under rule r 20.26 of the Uniform Civil Procedure Rules 2005 (UCPR) for $5,246,204.98 plus Mr Croghan’s costs as agreed or assessed (the Offer). The Offer was not accepted.

Ultimately, the Court determined the total compensation payable to Mr Croghan to be $4,227,314.98, which is some half a million less than the Valuer General’s original estimate, and over a million dollars shy of the Offer. Because the judgment sum was higher than the Offer, Council made an application for Croghan to pay its costs from the date of the Offer. After receiving further submissions from the parties, His Honour ordered Mr Croghan to pay certain parts of Council’s costs assessed on an indemnity basis from the date after the Offer was made.

What does it mean to Council?

To appreciate the significance of the decision in Croghan, it is worth bearing in mind that in Class 3 land acquisition matters, the claimant (that is, the land owner in most cases) is usually entitled to recover the costs of the proceedings. This is because, as the Court reasoned, the claimant who has been compulsorily dispossessed of their interests in land should be entitled to have the adequacy of the compensation determined by the Court (see, for instance, Dillon v Gosford City Council (2011) 184 LGERA 179, [2011] NSWCA 328 at [70]-[72]).

Historically, the Court has been reluctant to make costs order against the claimant on indemnity basis as measure to prevent the acquiring authority from making a low offer of compromise in order to pressure the land owner into discontinuing the proceedings. Thus in Tempe Recreation Reserve Trust v Sydney Water Corporation (2014) 88 NSWLR 449 (Tempe), the Court of Appeal refused to apply the UCPR rules on the offer of compromise, even though the acquiring authority’s offer of compromise turned out to be higher than the sum awarded by the Court. In Tempe, the Court instead ordered each party to bear its own costs.

However, in Croghan, the Molesworth AJ found that Council’s offer of compromise could not be characterised as a ‘low offer of compromise’, as it is substantially higher than the final sum awarded by the Court and, more importantly, the valuation of the Valuer-General a mere one year earlier. In addition, the Court found the $11,157,251.88 originally sought by the Applicant (which was revised down to about $8,000,000 shortly before the hearing), to be a ‘patently inflated or exaggerated claim’.

In our opinion, it is still too early to tell whether the Land and Environment Court will relax the presumption that costs should be awarded in favour of the claimant in class 3 land acquisition matters. In Croghan, Molesworth AJ was at pain to point out the exceptional circumstances of the case which led to the making of the costs order. It might be said Croghan is the exception that proves the rule.

Nevertheless, for Council, the lesson to be learned from Croghan (in light of the finding in Tempe) is that making a reasonable offer of compromise remains a valid means of minimising exposure to an adverse costs order following a land valuation proceedings. In some cases, a reasonable offer of compromise may free Council of the burden of paying the claimant’s costs. In extreme cases, as in Croghan, Council may be entitled to recover some of its costs.

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